When state governments — facing intractable budget problems — come to the Republican House asking for more bailout money, most GOP congressmen are determined to speak with one voice and say “no.” But where will the “no” leave the states and their citizens? Can they fix their fiscal woes by their own efforts?
They can raise taxes, of course, and set their states on a death spiral akin to that which has already destroyed Detroit and much of upstate New York. Or they can cut spending, slicing the heart out of vital services like education and police protection. Cuts of this magnitude will almost destroy the education of a large part of this generation of students.
There is a third way: to get to the root of the reasons for their dire crisis in the first place and abrogate their collective bargaining agreements with municipal unions that have brought them to this condition.
States cannot do so on their own. They need the federal government to adopt a bankruptcy procedure to allow them to do it. States are constitutionally bound to honor contracts, so it is only through a federal bankruptcy court that they can be released from the ill-considered and overly generous agreements that bind them.
In bankruptcy, municipal bondholders will — and must — be protected. But the bankruptcy court can offer states the option of renegotiating their union agreements to avoid raising taxes or eviscerating their schools. (States would not be forced into bankruptcy, but would enter it voluntarily, seeking the protection of Chapter 9.)
Even if the states had the legal means to get out of their union contracts without federal intervention, they could not do so politically. Union political power is too entrenched to be dislodged even by a determined governor and state legislature.